Warrants

9 Months Ended

Sep. 30, 2014

Note 6 – Warrants

The Company has valued warrants at their date of issue utilizing the Black-Scholes option pricing model. The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the warrants depending on the date of the issue and their expected life. The expected life of warrants used was based on the term of the warrant. The Company determined the expected dividend rate based on the assumption and expectation that earnings generated from operations are not expected to be adequate to allow for the payment of dividends in the near future. The following weighted-average assumptions were utilized in the fair value calculations for warrants granted:

	Nine Months Ended			Nine Months Ended
	September 30, 2014			September 30, 2013
Expected dividend yield		0	%		0	%
Expected stock price volatility		134	%		93-98	%
Risk-free interest rate		1.73-1.75	%		.14–2.60	%
Expected life of warrants		4.1-8.8 years			35-9.3 years

The following table summarizes the status of the Company’s warrants granted:

	Number of Shares Remaining Warrants			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2014		7,671,267		$	1.51
Warrants granted during 2014		11,862,000		$	.25
Warrants expired during 2014		(1,240,351	)		.50
Outstanding at September 30,2014		18,292,916		$	.78	5.1 years	$	0
Exercisable at September 30,2014		18,139,250		$	.75	5.4 years	$	0

The weighted average fair value of warrants issued during the nine months ended September 30, 2014 and 2013 was $.25 and $.41, respectively. During the nine months ended September 30, 2014, 11,878,000 warrants vested (4,302,625 vested for the nine months ended September 30, 2013), and 1,240,351 warrants expired. No warrants expired for the nine months ended September 30, 2013.

For the nine months ended September 30, 2014 and 2013, respectively, the Company recorded compensation costs of $4,962 and $349,065 for warrants issued to a former consultant/outside counsel (now an employee) of the Company. The warrants have a ten year life, a $1.20 exercise price, and vest from nine months to three years from grant date.

For the nine months ended September 30, 2013, the Company recorded expenses totaling $62,623 associated with the repricing of 423,125 outstanding warrants awarded to a former consultant/outside counsel who is now an employee of the Company. No such expense was recorded for the nine months ended September 30, 2014.